Your Right to Know

The vast majority of Ohio taxpayers will pay less in state taxes under the new two-year budget,
but the size of the benefit will vary greatly, depending largely on how much a person earns and
whether those earnings come from running a business.

The Ohio Department of Taxation says 98 percent of taxpayers will see a net tax cut under the
plan, but it includes a lot of give and take. While some will see hundreds or thousands of dollars,
others will save barely enough to enjoy one dinner out.

Over the course of the next three years, when the income-tax cut is phased in to 10 percent, the
tax package reduces income taxes by $5.3 billion. It also raises a variety of taxes, including
sales, property and commercial activities, by$2.6 billion, for a net tax cut of $2.7 billion.

“The reason this is so critical is because I have to deal with CEOs. I have to deal with people
who make decisions about where they are going to locate jobs,” said Gov. John Kasich shortly after
passage of the two-year, $62 billion budget. “When you talk to CEOs, you’ve got to have something
to tell them. To say Ohio continues to reduce taxes is spot-on.”

The tax cuts will reduce Ohio’s top income-tax rate from5.9 percent to 5.33 percent — the rate
paid on yearly income earned above $208,500. The vast majority of Ohioans, those earning $100,000
or less, will pay an effective tax rate of less than3.2 percent.

For single filers, the tax cut means a $45 savings for someone earning $25,000 and $117 for
someone earning $50,000. That will be partially offset by a quarter-percentage-point hike in the
state sales tax that, estimates show, would cost the first person about $20 more and the second
about $28 more.

In addition to the across-the-board income-tax cut, business owners operating as pass-through
entities for which profits are counted as income get a 50 percent income-tax cut on up to $250,000
of income.

“I don’t think the small-business owners across this state even understand what is in this bill,
because when they do, they’re going to be thrilled,” Kasich said. “This is going to mean businesses
are going to be able to reinvest ... get healthier ... and grow jobs.”

But critics say the tax cut also goes to passive investors and the roughly 80 percent of
businesses that employ only one person.

“The theme they’re putting out there that somehow the job creators out there are going to create
jobs with this, the amount of money they receive is not enough to create a job,” said Rep. John
Patrick Carney, D-Columbus. “I feel like it’s rhetoric over reason.

“If they just want to give wealthy people their money back because they feel they pay too much,
that’s a different argument than ‘this is going to create jobs.’ ”

The maximum tax cut is $7,000 for those who earn at least $250,000 — a mark reached by fewer
than 2 percent of Ohio business-income filers in 2009. The average person filing business income in
Ohio earned about $25,000, providing a tax cut of $351. For about 90 percent of business owners —
those earning $50,000 or less — the cut will be less than $1,000.

Some of those savings will be wiped out by a commercial-activities tax increase if the person
owns a company with more than $1 million in gross receipts.

Under current law, business owners pay a flat $150 on the first $1 million in gross receipts,
essentially getting a $2,450 tax credit. But now, that credit phases out depending on sales.

Those with sales: between $1 million and $2 million will pay $800; between $2 million to $4
million will pay $2,100; and more than $4 million will pay the full $2,600.

Some income-tax savings will be diluted by the state’s decision to stop picking up 12.5 percent
of new, local property-tax levies. A person with a $200,000 home will pay $44 a year more than
under current law for a new 5-mill levy.

Seniors who will not turn age 65 by Jan. 1 and who have more than $30,000 in income no longer
will qualify for the homestead exemption, which shields $25,000 of the market value of their home
from property taxation.

The impact depends on where a person lives. For those in the Columbus school district, it means
about $488 extra. It’s about $530 for seniors-to-be in the Gahanna-Lincoln District and $609 in
Dublin.